Practice Groups

Fannie Mae and Freddie Mac Litigation Survey

Fannie Mae and Freddie Mac shareholders have seen the value of their holdings plummet to a few pennies on the dollar and are looking for ways to recover some of their losses including through litigation. These shareholders may already be members of existing or proposed classes of shareholders in numerous different securities cases. This litigation survey focuses on current litigation that affects Fannie Mae and Freddie Mac equity investors, both preferred and common stockholders as well as former owners of these equities.

Background

On September 6, 2008, pursuant to the Housing and Economic Recovery Act of 2008 (HERA), the United States government, in an historic and unprecedented step, placed both The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) under the conservatorship of a newly established federal agency called the Federal Housing Finance Agency (FHFA). Prior to September 6, 2008, FHFA, which was also created by the HERA legislation, had no operating history or employees. Sweeping changes were swiftly made to the management of both companies, including the dismissal of the CEOs and other top officers as well as the appointment of their replacements. Many of the directors of these two companies resigned from their respective Boards.

Placing Fannie Mae and Freddie Mac into conservatorship had a devastating effect on the value of the stock of these Companies. Shareholders filed lawsuits against the Companies and their current and former officers and directors. Other lawsuits were filed against third parties such as underwriters and marketers of the Companies' Preferred Stock and Common Stock offerings which had been made within a year of the U.S. government take over. This morass of new litigation was piled on top of the existing litigation which had been filed before to the conservatorship.

Litigation

The litigation can be broken down into two major categories: 1) securities litigation against the Companies and/or their current and former officers and directors, and 2) securities litigation against the Underwriters and/or placement agencies of each Companies' Preferred Stock and Common Stock offerings in the past year.

Matters against the Companies and their Officers and Directors

2003/2004 Time Period

Both Fannie Mae and Freddie Mac had prior class action securities litigation cases filed in the 2003/2004 time frame regarding accounting irregularities and other claims. Freddie Mac settled its 2003 securities litigation on May 23, 2006 for $410 million. However, Fannie Mae's class action securities action In re Fannie Mae Securities Litigation. No. 04-01639 (D.C. filed September 23, 2004), has not settled and its class was certified in January 2008. The class which was certified is all persons who purchased Fannie Mae common stock, call options or sold put options between April 17, 2001 and December 22, 2004 and suffered losses.

2008 Cases

During 2008, a number of securities litigation matters have been filed against both Fannie Mae and Freddie Mac and their current and former officers and directors, both prior to and after being placed in conservatorship.

Fannie Mae

On June 25, 2008, a derivative matter was filed against the officers and directors of Fannie Mae and other "Subprime Facilitators" for failing to recognize the problems associated with subprime mortgages. This matter names not only Fannie Mae's officers and directors, but also a number of large mortgage companies that issued the mortgages. This matter is titled Agnes v. Raines, et al., No. 08-01093 (D.C. filed June 25, 2008).

Subsequent to Fannie Mae being placed in conservatorship, two class action cases were filed against the Fannie Mae's existing and former officers and directors. The proposed class is all persons who purchased or acquired the publicly traded securities of Fannie Mae on or about November 9, 2007 through September 5, 2008. The cases are: Genovese v. Ashley, et al., No. 08-07831 (S.D.N.Y. Sept. 9, 2008) and Fogel Capital Management, Inc. v. Federal National Home Mortgage Association, et al., No. 08-08096 (S.D.N.Y. Sept. 9, 2008). These cases are in the early stages and lead plaintiffs and lead law firms have not been determined.

On September 24, 2008, a motion to stay all proceedings in this litigation was filed by the conservator's attorneys and was an automatic 45 day stay order was entered. The litigation stay has, upon the conservator's motion, been extended until January 6, 2009, with a follow up status conference scheduled for January 9, 2009. This stay affected all of the Fannie Mae cases.

Freddie Mac

A securities class action was filed on January 18, 2008, entitled, Ohio Public Employees Retirement System v. Federal Home Loan Mortgage Corp., et al. No. 08-00160 (N.D. Ohio, Jan. 18, 2008), alleging Freddie Mac's failure to disclosure its substantial involvement in the subprime market and misrepresenting its financial condition. The proposed class is from August 1, 2006 through November 23, 2007 and would include all persons who purchased Freddie Mac common stock during the proposed class period.

On August 16, 2008, a second securities class action was filed, Kuriakose v. Federal Home Loan Mortgage Company et al., No. 08-07281 (S.D.N.Y. Aug. 15, 2008) alleging Freddie Mac's failure to inform and misrepresentations to investors. This lawsuit spawned other similar lawsuits; however, Lead Plaintiff status is still pending. The proposed class is from November 21, 2007 through August 5, 2008 and would include all persons who purchased Freddie Mac common stock during the proposed class period.

The Freddie Mac conservator has not filed for a stay of litigation, as all Freddie Mac cases are still active.

Matters against Underwriters

Both Fannie Mae and Freddie Mac made equity offerings during the period of September 25, 2007 through September 5, 2008 to raise additional capital. However, this new capital was insufficient to keep either Company from being placed into conservatorship. A number of lawsuits have been filed against the Underwriters and for placement agents of these new equity offerings alleging misrepresentations in the offering materials.

Fannie Mae

Fannie Mae had a common stock offering on May 8, 2008. On dates below, it made the preferred stock offerings:

Preferred Stock - Series P

September 25, 2007

Preferred Stock - Series Q

October 4, 2007

Preferred Stock - Series R

November 21, 2007

Preferred Stock - Series S

December 11, 2007

Preferred Stock - Series T

May 13, 2008

Securities class action lawsuits have been filed against the Underwriters related to the common stock offering and the preferred stock offerings - Series P, Series S and Series T. Lead Plaintiff status has not been determined in any of these matters.

Freddie Mac

Freddie Mac had one Preferred Stock offering - Series Z - made on December 4, 2007,and no common stock offerings during this time period. Securities class action lawsuits have been filed against the Underwriters related to this preferred stock offering. Lead Plaintiff status has not been determined in any of these matters.

Tables of Cases

Attached are tables of cases for Fannie Mae Securities Litigation and for Freddie Mac Securities Litigation which provide a brief summary of the cases described above including the case name, existing or proposed class, certified or proposed class period, primary Defendants, and primary causes of action.

Allegations include defendants acted knowingly or recklessly in making materially misleading statements and/or omissions during the class period; misrepresented material facts about business, operations and management of Fannie Mae; and artificially inflated market
prices as a result of conduct.

Nicholas Crisafi and Stella Crisafi Trustees FBO The Crisafi Inter

Vivos Trust v. Merrill Lynch et al.

Filed on: September 16, 2008

Dennis Sandman v. J.P Morgan Securities Inc. et al.

Filed on: September 29, 2008

Brian Jarmain v. Merrill Lynch et al.

Filed on: October 3, 2008

Lead Plaintiff(s): Not Yet Determined

Malka Krausz v. Federal National Mortgage Association a.k.a. Fannie

Mae et al.

Filed on: September 11, 2008

All persons who acquired preferred stock SERIES S during the Class Period and suffered damages.

Allegations include: whether the Offering Documents used by defendants to sell the Series S Preferred stock omitted and/or misrepresented material facts about Fannie Mae and its business; and whether the alleged improper conduct by the defendants caused damage to the plaintiff and the class.

Schweiter et al v Merrill Lynch et al.

Filed on: October 8, 2008

David Frankfurt, the Frankfurt Family LTD., The David Frankfurt 2000 Family Trust, and The David Frankfurt 2002 Family Trust, v. Lehman

Brothers Inc., et al.

Filed on: October 7, 2008

Lead Plaintiff(s): Not Yet Determined

Donald W. McCauley Jr. v. Merrill Lynch et al.

Filed on: September 18, 2008

Lead Plaintiff(s): Not Yet Determined

All persons who acquired preferred stock SERIES P during the Class Period and suffered damages.

On our about September 25, 2007

Merrill Lynch Pierce, Fenner & Smith Inc. Goldman, Sachs & Co.

The Series P Document and other offering materials omitted to state material facts necessary in order to make the statements, in light of the circumstances in which they were
made, not misleading.

No Cases Have Been Filed

All persons who acquired preferred stock SERIES Q during the Class Period and suffered damages.

On or about October 4, 2007

No Cases Have Been Filed

All persons who acquired preferred stock SERIES R during the Class Period and suffered damages.

Those who purchased or otherwise acquired Freddie Mac common stock during the Class Period.

August 1, 2006 through November 23, 2007

Freddie Mac Former Officers Directors

Violations of federal securities laws, including failing to inform the public that Freddie Mac had substantial involvement in the subprime industry and misrepresenting Freddie Mac's financial condition and results

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